Dow Theory sell signal may actually be telling us to buy

Simon Maierhofer is the founder of iSPYETF
and publisher of the Profit Radar Report. Investor’s Business Daily once wrote
that: “Simon says and the
market is playing along.” Simon analyzes technicals, proprietary supply and
demand data, sentiment and seasonality to spot low-risk or high-probability ETF
setups. He has been featured on: CNBC, FOX News, the Wall Street Journal, and
many other financial-news outlets.

What made this particular Dow Theory sell signal unique, is that the Dow Jones Utility Average (DJU) also fell to a new one-year low.

Although the DJU doesn't usually factor into the Dow Theory signals (as many commenters kindly pointed out; i.e., "What is this dude talking about utilities for? Get a clue on Dow Theory. Read Hamilton. Should I buy it for you, Simon?"), the implications of this particular triple-low constellation were statistically significant.

Why? Because this rare setup happened only four times in the past 25 years. The prior three times contradicted the Dow Theory sell signal, and actually turned out to be good buying opportunities.

Please know that I don't have a bias against Dow Theory (or any other indicator). My goal is simply to look at indicators objectively, and use historical data to assess their track record of accuracy.

The Aug. 24 sell signal just didn't pass the test, that's why the original column mentioned above proposed that: "the most important message is that some of the best buying opportunities occurred in September or October."

The chart below, which plots the DJI against the DJT, shows that both indexes bounced immediately after the Dow Theory sell signal was triggered (green line and red circles).

The DJI has been the stronger of the two, having retraced a bit more than Fibonacci 78.6% of the prior losses, and currently gnawing on trend line resistance.

The DJT has yet to recover even half of its losses, thus far unable to overcome resistance around 8,320 and 8,570.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
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